[AnaTG]

Hi everybody!

I am reviewing my material for the Audit test and in reading chapter three (Engagement acceptance and understanding the Assignment) I went over something I believe is wrong. I checked with the course help desk and the guy agreed with me on thinking it might be a misspell. Anyway, this is on the “Opening balances” topic – effect on the Auditor’s report”. It states that the inability of the auditor to obtain sufficient appropriate audit evidence regarding opening balances may result in one of the two as follows:

The 1st option we have is a “qualified or disclaimer”, as appropriate (fine, I understood that one) but then the second one bellow (for the Balance Sheet part) is where I was left wondering…

2nd – A qualified or disclaimer, as appropriate, regarding the results of operation and cash flows, and unmodified regarding the financial position???

How can an auditor give an unmodified opinion on the balance sheet if he/she was unable to obtain sufficient appropriate audit evidence regarding the opening balances? Shouldn’t the opinion be qualified/disclaimed as well on that particular report? The only thing I can think of is that the auditor might somehow know that the opening balance was immaterial and hence the unmodified opinion BUT the topic says the case is about the inability to obtain evidence about such balance so this would not be possible anyway.

Sorry if I sound redundant or confusing but English is not my first language. I appreciate any help! 🙂

[wizards8507]

That is NOT wrong. It is practically verbatim from SAS 122.

The balance sheet has nothing to do with BEGINNING balance. The balance sheet is a presentation of ENDING balance. If you do a physical count of inventory, for example, you may know for sure that there is $1 million of inventory that should be reported on the balance sheet. If you don't know the beginning inventory balance, you won't be able to accurately assess cash flow or cost of goods sold.

See Exhibit A in the .pdf below.

https://www.aicpa.org/research/standards/auditattest/downloadabledocuments/au-c-00510.pdf

NY CPA

[AnaTG]

Well, I know the BS is a presentation of the ending balance, but if the beginning balance of an account is wrong and is never corrected then the account and hence the BS will have a wrong ending balance. Wouldn't this qualify for a qualified/modified opinion on the BS then? I will read the Exhibit you provided later today, maybe it will answer what I just wrote down…gotta make dinner now. Thanks!

[wizards8507]

It could. That's why option 1 is also correct.

NY CPA

[Anonymous]

Becker has a multiple choice question on this. The reasons given were: unmodified on the BS because the ending balances can be addressed and corrected. Do a physical count of inventory. Value the investments. Value the PP&E. The entity can adjust the accounts and the ending balance can be corrected to what they should be. However your COGS will be incorrect for that year if the beginning balance in inventory was incorrect. There is no way to adjust for this so the auditor must give a qualified or disclaimer on the IS.

[AnaTG]

Hi CPA_Driven, I am actually using Becker and could not find that multiple choice question anywhere on chapter three and I already went through the whole homework and Sims on that chapter (just curious :)). Well, anyway, thanks for the help, your answer is what I had in mind (“because the ending balances can be addressed and corrected”) otherwise it could not be an unmodified opinion. I was still in doubt because I consulted with the Becker help desk and got the “misspell” answer (obviously not from their main Audit guy). Thank you!!!

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